Bombardier has finally disclosed a closely held secret by identifying that one of China's top leasing companies is the previously unidentified customer for up to 30 of its new CSeries aircraft.
The buyer, CDB Leasing Co. Ltd., known as CLC, placed a conditional order for five CS100 and 10 CS300 aircraft in July 2012. The deal also provides an option on an additional five CS100s and 10 more CS300s.
Based on list prices, the initial contract would be worth about $1.02 billion US, and at $2.07 billion US if all options were exercised.
'We anticipate that this will be the first of several orders that will ultimately see Chinese carriers operating CSeries aircraft' - analyst Walter Spracklin
"Given ongoing high fuel prices and increased environmental concerns, older and less efficient aircraft represent one of the greatest challenges to airlines," said CLC chairman Wang Chong.
"Following an in-depth analysis of existing and re-engined aircraft, the CSeries family of airliners, with its unmatched economics, advanced technology, excellent operational flexibility, as well as its outstanding performance seemed like the obvious choice and shows great potential for operators in China and abroad."
The announcement was made in Beijing at an event during the state visit by Gov.-Gen. David Johnston that included Chinese president Xi Jinping and Canadian ministers John Baird and Joe Oliver.
John Baird in China
"This announcement, witnessed at the highest levels by both governments, reflects extremely well on the co-operation between Bombardier and China in the aviation sector, as well as on the overall economic relations between Canada and China," said Baird, Canada's minister of foreign affairs.
For Bombardier, it is an important entry into a market where much of the growth in aviation sales is expected over the next 30 years.
Mike Arcamone, president of Bombardier's commercial aircraft division, said the "landmark agreement" with the aircraft's first Chinese customer also demonstrates the flexibility of the CSeries that is required by customers.
"With the aircraft having recently completed its historic maiden flight, the worldwide momentum of interest for the CSeries aircraft program continues to grow and we are pleased that yet another leading lessor has placed its trust in the CSeries airliner," Arcamone said.
Analysts welcomed the announcement, saying the high-profile event suggests that the options will likely be converted to firm orders and that other Chinese customers will come on board.
'Clean first flight'
"With a clean first flight and what we expect to be further orders announced as flight test data is compiled over the next several months, Bombardier continues to move in the right direction with the CSeries program," Walter Spracklin of RBC Capital Markets wrote in a report.
He said the order should boost investor sentiment and increase analyst share price targets for the Montreal-based manufacturer.
Spracklin said the addition of a Chinese leasing company is important because these types of buyers usually wait for confirmation of sufficient demand before buying an all-new aircraft.
"We anticipate that this will be the first of several orders that will ultimately see Chinese carriers operating CSeries aircraft."
Benoit Poirier of Desjardins Capital Markets said he's confident that Bombardier will achieve its target of 300 firm orders from 20 customers by the time the CS100 aircraft enters into service in about a year.
Part of manufacturing in China
"We continue to believe Bombardier's backlog is poised for growth, and we are confident in the company's ability to take advantage of many near-term opportunities in transportation and aerospace (including substantive potential orders from American Airlines, Air Canada and Lion Air, among others)," he wrote.
Bombardier has focused a lot of its attention on the Chinese market. Part of the aircraft's fuselage will be built in Shenyang and it has ramped up its relationship with Chinese aircraft manufacturer Comac to enhance commonalities between its CSeries and the C919 widebody aircraft from Commercial Aircraft Corporation of China Ltd.
The second phase of a co-operation agreement signed last June is designed to improve the competitiveness of both aircraft by maximizing cost savings and market share, while allowing customers to gain cost benefits from operating both aircraft.
Some initial production problems forced Bombardier to temporarily move production of the mid-fuselage section from Shenyang to an in-house facility in Belfast.
SAC Commercial Aircraft Company continued to supply the rear fuselage section which is shipped to Mirabel, Que., where it has been joined with other sections.
On the Toronto Stock Exchange, Bombardier's shares closed up 8 cents at $5.08 On Friday, down from the 52-week high of $5.18.